- Rising bond yields and the largest increase in consumer inflation in 13 years are pressurizing the S&P 500 index, leading to a steep selloff this Wednesday.
The sharp rise in US consumer inflation is giving investors on the S&P 500 index some cause for concerns and has triggered a steep selloff on the day.
US consumer inflation (headline) rose 0.8% in April, the most significant monthly increase since September 2008. The core number came in at 0.9%, with both the headline and core CPI far exceeding the economists’ projections who had called for a rise of 0.2% and 0.3%, respectively.
Also pressurizing the S&P 500 index is the rise in US Treasury yields, with the 10-year note rising 3.19% as of writing. This marks the 4th day of gains on the yield asset.
The rise in inflation once more stirs talk of the possibility of early tapering of the QE by the Fed or an earlier than expected considerations of a rate hike. This is a bearish factor, as is the rise in bond yields, promoting the shift of capital from stocks to bonds.
Technical Outlook for S&P 500
The steep decline in the S&P 500 index has violated the 4120.5 support. Price needs to close by a 3% penetration below this level to confirm the breakdown. This move would open the door towards additional downside targets at 4082.7 (April 8 low) and 4032.4. A further decline allows 4000.00 and 3950.1 to come into the picture as potential future targets.
On the other hand, bulls would be expecting the price to get to good dip-buying levels, launching from there and transcending resistance areas at 4150.4, 4176.6, and 4200. Clearance of these levels allows the bulls to aim for a retest of the all-time high at 4238.0. A break of this ATH allows bulls to seek further targets at 4260 (as per this week’s Credit Suisse’s analysis report), and the 200% Fibonacci extension at 4301.00.
S&P 500 Index; Daily Chart
